Selling share to own company

Selling share to own company

Didn't find your answer?

A client owns two Ltd companies and is looking to wind down a bit. Company A has traded succesfully for a number of years and has built up considerable assets. It now owns residential property of £220k cost plus cash of about £100k. Its trading has dwindled to about £40k per year. Company A also operates a pension scheme.

Company B has built up listed investments of about £62k and cash of about £500k. The business trades turning over about £250k per annum.

It has been proposed that my client sells his shares in Company B to Company A at an arms length market price for the assets and business. This will allow him to utilise taper relief on the gain and realise a sum of money.

At some future point the business and assets of Company B can be hived up into Company A. Reducing the possibility of the IR contending Company A is a CIC.

Does anyone see a problem with this?
AN Other

Replies (3)

Please login or register to join the discussion.

avatar
By Paul Soper
08th Oct 2007 22:52

Be careful...
It looks like company B may have problems sustaining a claim to business asset taper given the size of its investment activities as suggested here - non-trading activities of >20% will cause total loss of Business Asset Taper, and frankly that has probably happened already with Company A. You refer to the dangers of A being a close investment holding company, I think that might be the least of your worries. You don't tell us how old the client is but if he is looking to wind down a bit, I assume that's what you mean then IHT considerations may come into play as well. I think some form of merger between the two companies is needed, but NOT one to trigger a gain that will not qualify for BATR - probably A needs to take over B (or indeed B take over A!) by a share exchange to avoid an immediate gain injecting the trade into A to prevent the loss of BATR there and reduce the overall CT burden, with an internal group reorganisation to make B a single company. Whatever happens this needs very careful planning.

Thanks (0)
avatar
By AnonymousUser
09th Oct 2007 12:27

and a clearance...
...would be a good idea as you have a transaction in securtities. You would need to come up with a business reason for the transaction.

Thanks (0)
avatar
By User deleted
10th Oct 2007 09:27

Not a simple case
I realise this is not a simple case and it is one in which there is not going to be a solution that is entirely to the client's liking (ie: he will have to pay some tax!), its about a compromise.

In terms of the CIC issue, my understanding is that it is not only the magnitude of the investment activity but also the 'intent' of the company that matters. With Company B whilst the investment activity is quite large there is a clear intent to trade as evidence by the turnover. Also the client is amenable to using the reserves to buy, say, some furnished holiday let properties which would qualify as a trading activity and would generate income and the possibility of a longer term capital gain. Company A is safer on this issue as I understand that for CIC purposes residential properties let to unconnected persons qualify as a trade, however there is a potential problem here in that one unit is let rent free to a connected party.

On the taper relief issue I think we are more vunerable, as I understand it residential property letting does not qualify as a trade for BATR, which would probably rule it out for Company A. However Company B is mainly a trading company although the large cash assets are potential problem. We may be able to do something with the cash (ideas on a postcard) that makes BATR a more secure option.

Paul you are correct in this does need careful planning, hence I am going out to specialists for this matter.

Thanks (0)